CEO compensation research that draws on the behavioral agency model has largely focused on the market-related behaviors that CEOs undertake in response to growing equity risk bearing. In this study, we examine the impact of CEO equity risk bearing on corporate political activity (CPA) — an overlooked nonmarket behavior. Specifically, we hypothesize that CEOs with large current stock option wealth will increase the breadth of lobbying, the most common and effective form of CPA. We argue that while industry regulation and the presence of foreign institutional ownership strengthens, being government contractors will weaken the main relationship. We find broad support for our hypotheses in a sample of publicly traded US firms listed in the S&P 1500 index between 2009 and 2016. Our study sheds new light on CEOs’ nonmarket behavioral response to their growing equity risk bearing and provides new insight on CEO compensation as an important individual-level driver of CPA decisions.
